Why Amazon's Reason for Launching the Mobile Card Reader is Not What You Might Think

Amazon recently launched smartphone-compatible credit card readers for brick and mortar stores. However, a good bit on competition already exists in this business, including PayPal, Square and Intuit.

Contrary to the popular belief, M-POS businesses are not doing so well. Consider the following facts:

Square, the popular m-POS service provider, recorded a heavy loss of around $100 million last year. The transactions made on Square’s smartphone-compatible credit-card readers are yielding very thin margins.

Square has made a number of additions to its merchant services in order to increase its revenue beyond the 2.75% it charges for swiped card payments. A couple of months back, Square launched a credit program for small businesses called Square Capital. The program allows merchants to pay back loans from the sales they do using Square’s payment services. Square makes the lending decisions based on the merchant’s transaction history, creating unique lending rates tailored to each individual merchant.

Square had also launched ‘Square Feedback’, an interactive digital receipt which comes at a cost of $10 per month for the merchant. Along with the standard information about the purchase, merchants can also add a request for feedback from the customers. The receipt based feedback system will act as a direct line between the customer and the merchant. These can all be seen as Square’s attempts to make up for a suffering mobile card reader market.

For this reason it seems more likely that Amazon is stepping into the M-POS realm as a line filling decision, and not as a major move or huge launch.

First and foremost, Amazon is an E-commerce player with big ambitions to disrupt the entire retail sales market. As per U.S. Census Bureau, the retail sales in the country had reached $1.15 trillion in Q1 2014, while e-commerce sales reached only $71 billion in Q1 2014. This is just a tiny fraction compared to the total retail sales transactions, and Amazon knows that. Becoming a factor in the sales occurring through merchants who are still selling offline seems like a wise choice. Bringing the next 25 million merchants (many of them micro-merchants) into the connected world of e-commerce and payments through mobile card readers may be one way. Integration of online payments with offline payments makes a lot of sense for a player like amazon who would want to be at the forefront of this battle. The offline/physical stores based commerce is still 10-15 times larger than e-commerce. This could be a huge opportunity for amazon to hook previously offline merchants into their network and enable them to sell better offline and online. Retail and e-commerce are merging and omni-channel is the way forward.

That said, payments are just a small (yet significant) part of the commerce value chain. It’s the lid of the water bottle. The commerce experience is choosing the right bottle, the right kind of water and drinking in a way that satiates your needs. Once you have done that all you have to do is open the lid and drink. So the Mobile Card Reader is just an incremental addition, another arrow in the quiver. Also because commerce experience is much more important than payments, it puts the physical retailers and e-commerce players at an advantage when thinking of best payment solutions. Starbucks and Uber are a classic example.

Starbucks generates more than 15% of its sales volume through its mobile wallet service. Starbucks processes about six million in mobile payments per week with 12 million customers using mobile apps to pay. This is indeed a staggering amount of transactions for a single retailer. The taxi service Uber provides seamless payments for its service and handles most of the customer experience through its dedicated mobile app. At the end of the ride, the passenger does not have to fumble with a purse or wallet to pay to the driver, as it is automatically deducted from the credit card stored in the Uber app. So Amazon would rather do what it is good at (Commerce) and replicate what Starbucks and Uber are doing rather than actually get into payments solely.

The next 10 years in retail belong to the data. Massive data is being generated in retail from POS, mobile apps, Beacons, Wifi, MAC address pinging, NFC chips and others. The analytics that is drawn on top of the data and that tells what consumers are buying, when, where and by using which cards and methods. Then serve contextually relevant offers, enroll them into useful loyalty programs and make their shopping experience richer. Payments data from POS (hence Amazon mobile register) is a goldmine of such data.

For Amazon or any other non-banking player the biggest opportunity today is to disrupt the consumer and merchant side of the equation, where banks have failed to make a big mark. The next 5 years could see technology companies and startups building huge user bases and helping merchants accept mobile payments as a part of a superior commerce experience. Amazon can be expected to make a huge contribution in this space.

Amazon would be looking into tapping its database of 200 million cards on file. Add to that the security that the shoppers look for in making mobile payments that they may not be able to find in small storeowners and street vendors, and Amazon’s M-POS seems full of opportunity.

Amazon will certainly use its experience in other important commerce processes such as inventory management, supply chain and loyalty programs to help these small storeowners and street vendors. It will help smaller retailers to compete with large ones by making available to them what was only available to the large retailers before.

“Amit Goel is the Founder & Chief Strategy & Innovation Officer for MEDICI. Amit’s vision is to build a strong FinTech market network that involves financial institutions, banks, startups, investors, analysts & other key stakeholders across the ecosystem – helping each one of them in a meaningful way by removing the asymmetry of information and providing a platform to engage & transact.\
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Amit is passionate about bringing actionable FinTech-focused insights, innovative products & services for the FinTech ecosystem. Some of his work involves startup scores, bank scores/assessments, predictive viewpoints & other innovations that have helped MEDICI’s customers and the ecosystem. He has been named amongst the Top 100 FinTech thought leaders/influencers in the world & Top 10 in Asia multiple times by reputed agencies, consulting firms as well as financial institutions. Amit has built MEDICI (formerly LTP) as a new-age, tech-enabled advisory/research firm, which is now considered the #1 global research & innovation platform for FinTech in the world.\
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Amit has been writing pioneering viewpoints on financial technology space that have been ahead of the curve since 2010. His data-driven predictions have helped the customers as well as the ecosystem. His past work experience includes a strong background in strategy & market analysis and advisory to clients (from big business houses to Fortune 500 firms) in payments, commerce, financial services & IT/technology. In the past, Amit had also founded a successful consulting & research practice called GrowthPraxis and has worked at Boston Analytics, Frost & Sullivan, and Daimler Chrysler in strategy & research.”

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